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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

Sunil Basavaiah Sanjai Velayudhan June 2009


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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

Table of Content

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Introduction Loyalty in Retail Comparisons of Leading Loyalty Programs Core features of Retail Loyalty Program 4.1 Common Features of Retail Loyalty 4.1.1 Customer Profile 4.1.2 Cross Channel Member Enrollment and Redemption 4.1.3 Perform Extensive Segmentation & Targeted Marketing 4.1.4 Quick Promotion Creation 4.1.5 Flexible Tiers 4.1.6 Statement Management 4.1.7 Flexible Accrual rules 4.1.8 ROI Analysis 4.1.9 Transaction Processing 5 Technology Consideration 6 Pain points of Legacy Systems 7 Comparison of Leading Loyalty Solutions 8 Case Studies 8.1 Nectar Loyalty Program 8.2 Tesco Clubcard Loyalty Program 8.3 Malina Coalition Loyalty Program 9 ITC Infotechs Unique Positioning 10 Conclusion 11 References 12 Appendix

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1. Introduction
Loyalty is a positive belief, generated over the course of multiple interactions, in the value that a company and its products and/or services provide, which leads to continued interactions and purchases over time. Loyalty can be defined as a customers sustained commitment to a company as demonstrated by repeat purchases, increased wallet share, and positive word-of-mouth referrals. Research indicates that when a company can command such loyalty, the benefits include, but go considerably beyond, incremental revenue. Loyal customers go out of the way to use companys services. With increased usage come increased revenues. It is an accepted fact that word of mouth is the strongest form of endorsement for a companys product, service or brand. In an HBR study, Frederick Reichheld and W. Earl Sasser identified numerous bottom-line benefits of customer retention.1 They found that loyal customers purchase more, they will pay higher prices, they are easier to service, and they help expand the customer base by giving positive referrals. They established that a mere 5% increase in customer retention increases an organizations profitability by 25 percent. Acquiring a new customer can cost as much as 5 times of keeping an existing one. Having said this, loyalty programs can be expensive to develop and maintain. The program cost varies from sector to sector. Airlines and Hotels, have a very high fixed cost and run low on variables cost. Unsold inventory and distress inventory offers exciting avenue to reward customers. The cost to fly an additional person who purchased his or her ticket with points is trivial. On the other hand every point that a retailer awards has to be paid for the company by cash. Other associated costs for loyalty are attributed to system those system costs. System costs involve the cost of technical infrastructure, the software cost and the integration costs. While many firms have been successful in implementing loyalty programs, not all the loyalty programs have delivered the intended results. Failure to identify the long term nature of loyalty and failure to differentiate the loyalty offerings have resulted in proliferation of loyalty programs. Customers often hold multiple memberships and shop around multiple stores based on need and available discounts. This trend doesnt lead towards any sort of long sustaining relationship. In a recessionary environment, when consumer spending is at an all time low and discounts is the rule of the day, marketers should take a look at ways to add value to the customer. It is so very critical to understand the need of the customer and offer highly personalized service at the most appropriate of times.

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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

2. Loyalty in Retail
A consumer today interacts with retailers on a daily basis while shopping for his grocery needs, buying apparels or sipping his coffee. He faces an array of similar products often available at competing stores at almost similar price points. This commoditization has created a retail environment where the importance of brand has diluted and consumer shops around competing stores with abandon. In retail sector, consumers typically patronize multiple outlets; it is a challenge for the retailer to retain his customer share simultaneously increasing the share of wallet. One such way adopted to increase repeat purchases is through loyalty programs. Retail loyalty market is fairly broad. In some segments such as grocery, for instance-loyalty programs have become ubiquitous. According to AC Nielsen2 (2005), more than 60% of European and American consumers belonged to at least one grocery store loyalty program. About 76 percent of all US grocery retailers with 50 or more stores have a loyalty program3 Almost 50 percent of top UK retailers have a loyalty program4 80-90% of all grocery customers have a loyalty card; 56 percent of them use two or more loyalty cards5 A Typical loyalty program aims at creating a competitive advantage while maintaining a healthy profit margin. A loyalty program aims to increase switching cost, increase customer share of wallet and ensure repeat purchases. Despite the pervasiveness, loyalty programs, particularly in retail have failed to deliver the intended results. Low switching cost means customer tends to hold multiple loyalty cards and shop at several stores based on contingencies. Without any clear segmentation companies end up offering discounts to every member joining the program fostering discount retailing leading while increasing expenses. Loyalty programs might not be able to catapult the desired results owing to strategic or technological failure. While failure to differentiate members by their intrinsic value can be termed strategic, Inflexible systems with high maintenance cost and poor integration capabilities inhibit the success of a well designed program. This article tries to capture the essentials elements of a retail loyalty program and the technologies that the businesses are currently using to implement these programs. Additionally, the article will try to detail the features available in leading loyalty solutions.

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3. Comparisons of Leading Loyalty Programs


Feature Loyalty Program Nectar Multi-partner coalition loyalty program Nectar point based on currency spent (eg 1 Point per 1 spent) Malina Coalition loyalty program Point allotted on member spend Base Point + Express points available (Express points are clubbed with offers) One loyalty card All family members can collect points on one membership account Points are collected upon shopping or using services at partner PoS Tesco Club card In house loyalty program of Tesco Point allotted on member spend

Point Type

Loyalty Card

Magnetic Strip Card 1 Card regardless of member enrollment

Club Card 2 Key Fobs

Accruals

On purchases at member stores At over 6000 participating outlets

Points accumulated on shopping in store, online & other Tesco companies Points accrued at 10 participating partners Vouchers can be spent in-store on shopping. Vouchers can be spent in online stores. Deals can be utilized for day out and magazine subscriptions

Redemption

Exchange points for cash discounts with a collaborating business when making a purchase (Can be used in flights, offers on groceries, holidays, restaurants) Exchange points for goods or discount vouchers.

Points can be redeemed against qualifying goods and services from the rewards catalogue.

Points Validity

Not Available

3 year from date of enrollment.

2 year from the date of enrollment.

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Promotions

Customized offers based on member consumption Through PoS activity and in-store media

High response direct marketing promotions and offers Offer sent through mailers

Tesco has identified 5000 need based segments & drives 250,000 different combinations of coupon-based promotional campaigns Online, via helpline, instore application Reward tokens can be ordered via phone, mail or web, and collected from store as well.

Member Enrollment Redemption channel

Web, Phone, In-store Web, Phone, In-store (voucher, purchases)

Website, communication center, POS To be ordered via website or communication center Not Available (3 days before points accrue in member account) Available with Ramstor card

Instant Earn & Burn

Not Available (24 hours before points can be redeemed) Available 2 point per 1 spent on Nectar card & 2 points per 1 spent on AMEX Quarterly point updates Point balances can be checked online Nectar eStores 2 points per 1 spent AMEX card Customer Preference Profile (during registration) No. of points earned per transaction (individual basket items not stored)

Double Dipping

Statement Generation

Website, Kiosks at store, SMS, contact center

Statements sent 4 times a year Point balances can be checked online Tesco.com Not Available Tesco database clustered some 5000 need based segments

Shopping Portal Co-Branding Database Marketing

Not Available Visa card Raiffeisenbank Rich customer database including demographic and transactional data consumers purchasing behavior

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Analytics

BI tools providing capability to analyze Malina database Infosys Custom (Java Based) Comarch Logistics module Comarch Contact Center module Loyalty Partners Vostok 3.6 million members(1.1 million Active accounts) 200 million transaction in 2008 Dunnhumby provides data analysis 10 million active households In-house loyalty solution

Technology Partner Loyalty Solution Complimentary Technology Program Run by Transaction Volume

RightNow CRM for eService & Call center


Loyalty Management Group UK (LMUK) 20 million members

Core features of Retail Loyalty Program Loyalty programs worldwide, want to identify and reward their most valuable customer and reward them on an ongoing basis to ensure repeat purchase. Rewards are calculated & offered with every transaction the customer makes. The simplest way to do this is through points. Retail is no exception to this. While there cant be a loyalty program without point accumulation. This alone doesnt suffice as a key business differentiator nor does it create any remarkable value. A quick comparison of industry best practices shows the following common features that form the core a successful loyalty program:
Accural Rules

Multichannel Access

Flexible Tier

Customer Profile

Loyalty Core Features

Segmentation

ROI Analysis Segment management Transaction Processing

Multiple & quick promotion creation

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4.1 Common Features of Retail Loyalty


4.1.1 Customer Profile Loyalty program is a way for retailers to understand the customer beyond the usual faceless transactions. If the retailers are to do any type of segmentation they need to have customer profile data like contact profile, demographic profile, shopping preferences and past buying behavior.
Customer Profile Contact Profile Name Address Preferences Profile Gift Services Purchase Pref

4.1.2 Cross Channel Member Enrollment and Redemption


Portal Store Call Center

Member enrollment should be least cumbersome, considering the store associate has very limited time to expense towards member enrollment, the enrollment process should be designed it a way that it doesnt take much time to enroll a new member. While off line manual registration seems to be the most preferred means of registration, retailers are also trying online self registration. Members should be able to earn and burn points in any channel. The program should be flexible enough to provide a consistent experience to the customer irrespective of the channel that the customer utilizes.

Multi-channel member Enrollment

Customer DB Fulfillment

Value - based Segmentation

4.1.3 Perform Extensive Segmentation & Targeted Marketing To map customers true value to a tier/segment, in order to enhance satisfaction of high-value customers and increase profitability of lowvalue customers extensive segmentation has to be done. Retailers use targeted promotions tailored for each customer segments needs and desires. How this is accomplished will vary by type of items sold, the value of each customer, and customer segments serviced, among other things. The idea is to ensure high response rates for campaign and increases promotion effectiveness.

Frequency

Customer Value www.itcinfotech.com

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4.1.4 Quick Promotion Creation The purpose of the loyalty program is to provide competitive advantage for the retailer. To maintain that lead, a retailer must continuously adjust and evolve his program as the customers needs, business requirements, and competitors offerings change. Ability to bring in the right promotion at the right time is vital for the success of the promotion. The program should be agile enough to quickly enable set-up of promotions as desired by market (e.g. to promote sales of highly seasonal products or customer behaviors on a precise period of time).

Stage 28IA-2AF23

Rewards Enrollment Targets split by.......

Timberland Rewards Enrollment Offer Email...

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Enrolled in loyalty

Timberland Rewards Enrollment Offer Direct...

TBL Rewards Welcome Kit

Stage 2SIA-2BA41

TBL-Hiking Enthusiasts

4.1.5 Flexible Tiers Groupings of members who share common characteristics or status into a tier. To ensure tier rules and bonuses closely correspond to customers needs or desires and maximize members incentives to yield the greatest return for the host company.

Timberland Rewards Redemption Campaign

4.1.6 Statement Management Generate statements via web, email or mail to enrolled members. The statement should essentially provide the members transaction history along with accrued and expired points.

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4.1.7 Flexible Accrual rules

Unlike Airlines or Hospitality, retailers have to toy around with low margins and hence it becomes very vital how they structure their accrual rules. Besides in coalition loyalty programs different accruals will have to be set for each participating partner. Accrual rules should be defined for both purchase and nonpurchase actions (eg: enrollment into a loyalty program, participating in an in store demo)

4.1.8 ROI Analysis Customer loyalty programs provide retailers with soft benefits such as improved reputation and better brand equity. There are also other measured and concrete benefits like decreased price competition, increased customer retention, greater share of wallet, increased footfall which need to be tracked to measure the success of the program. At minimum the retailer will want to measure the campaign effectiveness, track marketing expenditure (cost of campaign and cost of loyalty) and identify the most successful member segment. 4.1.9 Transaction Processing Exact calculation to be made on basis of the transaction uploaded. The loyalty engine should calculate points based on the Accrual rules set up in the promotions. The loyalty engine should be able to calculate both accruals and redemptions. Transactions logs should be available to determine why a certain transaction was processed while another seemingly eligible transaction was not processed. Transaction Reward Points POS Loyalty

Reward Points on Receipt

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5. Technology Consideration
The underlying architecture that enables a company to accomplish its loyalty goals should be flexible and robust enough to support the loyalty programs. Loyalty programs have often times not yielded expected results on account of technical limitation posed by the loyalty solutions. Inflexible point solutions do not exactly match retailers expectations in terms of coverage and cost. System Costs Significant investment goes into the technical infrastructure supporting the loyalty program. While loyalty solution (software licenses) and server infrastructure mainly account for the fixed cost, annual maintenance and upgrade costs contribute towards the variable costs.
Cost Category

Fixed Cost

Software Licenses Hardware Licensing (Server) Implementation Cost Integration with PoS, inventory and other partner systems Annual maintenance Change request Upgrade

Variable Cost

Retailers can also look at SAAS models that charge monthly usage fee based. Typical licensing fee for loyalty solutions are as follows: Retailer Annual Revenue $250-$1B $1B - $5B $5B and over License Cost for loyalty Analytical applications $200K - $450K $450K - $750K $750K - $1.1M License cost for loyalty execution application $250K - $400K $400K - $600K $600K - $750K

In addition to the system cost, retailers have to bear the program cost (marketing, printing and communication cost). Unlike airlines where an unsold seat is a perishable commodity, every point redeemed will be paid by the retailer. Technology as can be seen is a significant capital expenditure and hence retailers will think twice before spending every dollar. Integration with PoS and other systems Loyalty system simply can not function in isolation. It has to be part of the retailers IT landscape. Loyalty system will have to integrate with the customer master (database) to fetch and validate customer data. It has to obtain transaction details from core retail system on a batch or near real-time basis. Also loyalty rules generated by the loyalty system have to available at the PoS. Retailers existing web site should seamlessly integrate with the loyalty solution (capabilities often provided through web services). Catalog or promotion information provided to the member should be consistent across channel. Lag in communication between retailers database and the website are to be avoided.

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Flexibility & Time to market

Every new product launch, every competitor move results in creation of new promotions. Retailers cant wait for 3 months to launch a promotion. Programs should be flexible and adapt to changing market and competitive dynamics. The system should allow promotion to be created and deployed within short notices. It should also be easy to manage tier changes. It is crucial that the marketers get the right promotion at the right time any delay would have low impact on profitability. Retailers need a system that helps them look out for distressed inventory and create promotion that could sell this inventory. Also with the changing economic scenario, the loyalty implementation period has been bought down to as low as 6 months. Any off the shelf product supporting loyalty solution should be deployable within this period.

Scalability

Retailer create huge volume of transactions, managing these transaction could be quite a challenge. An average sized retailer generates as much as 200 million transactions in a year. The loyalty engine should be able to handle process this volume of transaction.

Loyalty Analytics

Apart from static reporting, retailers require loyalty solution to provide them with real-time on profitability drivers. Analysis of promotion effectiveness, understanding the product and price mix most likely to influences member buying behavior and other loyalty drivers should be available in the analytical solution. The analytical solution should be able to provide decisive data on ROI.

6. Pain points of Legacy Systems


Most retailers understand that a well thought loyalty strategy need the right technology for execution. However most retailers are stuck with loyalty solutions implemented in the early 90s. Technology limitations of legacy systems severely hamper the companys ability to offer precisely targeted high value loyalty programs. Many retailers have not been able to achieve their targeted goals accounting to technology inadequacies. Lack of configurability and flexibility - Loyalty programs are supposed to increase a customers loyalty to the host retailer by creating a unique value proposition that competitors cannot easily match. Inability to respond to competition will prove to be a severe handicap. Legacy systems make it prohibitively costly and time consuming to change promotions. Most often promotions are hard coded and it becomes extremely difficult to enhance promotions and hence retailers loose the ability to adapt to changing market dynamics resulting out of competition. Higher system cost lower program profitability - Most of the loyalty programs are run on custom application and it becomes extremely difficult to share costs amongst partners. In such a scenario it is difficult to achieve any sort of economies of scale which in turn exacerbates the maintenance cost. Little or no access to customer data for analysis - Fragmented customer view, inability to leverage key loyalty data means retailers derive limited value from the data. Member rewards and recognition not consistently tied to the organizations profitability drivers. This in turn limits retailers ability to create complex, targeted promotions.

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Minimal Analytical Capability - Inability to measure effectiveness of loyalty promotions, partners, products/services, Limited segmentation and analysis of customer behavior mean that the marketing managers dont have enough ammunition to make take those vital decisions. Poor interoperability - Data is maintained in different silos and results into disconnect between website and other channels. It is also difficult to integrate with new data interchange standards like web services. Multi-channel integration becomes a difficult in legacy system. The increasing dynamism of consumers and changing competitive landscape have significant bearing on loyalty programs. Consumers preferences are changing rapidly and information is proliferating even more rapidly requiring great deal of flexibility on part of loyalty programs. Loyalty programs are getting complex as customer seeks to maximize his returns from the retailers. Web marketing and e-commerce are turning to be the preferred channel of communication. It is imperative that the retailers have to move on from technologies that are unsupportive to more nimble solutions which maintain the efficacy of their programs.

7. Comparison of Leading Loyalty Solutions

In this section we evaluate some of the leading retail loyalty solution available in the market. Siebel is the leading enterprise CRM solution, offering complete loyalty management solution. It provides for a comprehensive member view along with flexible tiers. Siebel offers a robust promotions management engine and is capable of handling complex promotions. It has a scalable loyalty engine that can process transactions in real-time basis. Siebel loyalty can be fully integrated with Siebel CRM solutions including marketing and analytics. Comarch Loyalty Management is a comprehensive loyalty management offering. It allows companies planning to invest in a new loyalty management suite to overtake their competitors in the race for premium customers. Likewise, it enables companies already benefiting from loyalty programs to manage their programs more flexibly and with greater ease. No. 1 Functionality Integrated member profile Siebel Siebel supports storage of member profile, capable of providing a 360 degree view of customer. However it doesnt facilitate card readers OOB. Supports member hierarchy and household generation. Supports different types of promotions simple, frequency, joint, action based. Action can be based on rules and criteria decided by the administrator Comarch In order to identify loyalty program participants, the system supports magnetic cards, chip cards, cards with bar codes and identifiers without physical carriers. Member hierarchy and household features not available. Parameterized promotions available. Loyalty points can be awarded for transactions, purchases of particular products and other loyalty-related events. It allows for the design of promotions and issuance of rules using member data and individual transactions.

Promotions

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Tiers

Complex tiers can be set and rules can be established to map member into respective tiers. Controls all aspects of tiers from number of tiers to tiers rewards. Statements can be printed using Oracle BI Publisher, solution not readily available out of the box. Accumulation of points based on Accrual rules managed automatically by Loyalty engine. Supports both qualifying and non qualifying point types. Additional point types (upto 8 types) can be set. Systematic processing of member transactions. Transactions can be sourced from PoS, web or partner systems. Transactions can be processed in batch or real-time mode. Logs to track transaction processing, provides details of promotions account where points were accrued and reasons for failure. Options to manual post and process transactions. Supports all types of redemptions Points against reward catalogs, offers, vouchers.

Allows creation of basic tiers. Ability to manage promote members between tiers is not known. Reports generator, supporting schedule reports. Generates reports on-demand or automatically. CLM manages issuance of miles/points from various loyalty programs. The transaction processor processes the point balances. Processes all types of transactions, updates account balances, store transaction history in DB. Every transaction of issuing or redemption is processed by Transaction processor online.

Statements

Accruals and point management

Automated and manual transactions

Redemption management

Supports all types of loyalty rewards including prizes, services, percentage discounts and quantitative discounts (coupons). The value of rewards can be defined in a number of ways, including as percentages of transaction values or as fixed values in loyalty points or cash. Rewards can be given for transaction as well activity. Doesnt have a strong customer service solution. However can be integrated with CTI solutions.

Integrated Customer service

Offers Siebel Service module: A comprehensive customer service solution which can be integrated with CTI. Has to be licensed additionally.

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Integration with PoS

Siebel provides iSLE a set of Java APIs which allow promotions to be uploaded into the PoS.

It is possible to integrate loyalty systems witha cash register system for more convenient operation and in order to increase the potential of loyalty promotions. Supports web services based integration. Offers campaign planning and creation. However doesnt have a comprehensive marketing solution. At best can be used to send mailers. Offers Smart Analysis, A data mining and analytical tool to organize data into easy to analyze charts and graphs for use by high level CLM operators. Offers dedicated web portal through which members is giving access to view transactions and reward catalog. Business partners have access to personal business data and program parameterization tools in a multi-partner environment using the B2B portal. Highly focused on Airline FFP, have implemented coalition loyalty programs in retail as well. Focus remains on Airline. File import and export managed to all external systems. Offline capability can be availed to upload files to the central db via file processor.

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Integration with Web Applications Integrated Marketing

Can be integrated with existing web portals through web services. Offers campaign planning, budgeting creation, execution and response management, Siebel offers integrated marketing solution, requires licensing of Siebel Campaigns module. Siebel offers OBIEE as its Analytical solution. As comprehensive Analytical system it can perform segmentation, promotion responsiveness, evaluate customer scores. OBIEE The solution has to be additionally licensed. Siebel member portal offers online loyalty solutions.

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Integrated Analytics

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Member Web Site

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Partner Portal

Loyalty Partner Portal to interact with its partners by sharing member information, jointly creating promotions, and reviewing and editing transactions. Offers highly verticalized solution. Strong foot print in retail with complementary product available in oracle suite. Transactions can be exported via xml, excel format. Loyalty iSLE helps uploading promotions into PoS applications in xml format

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Retail Vertical specific features

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File Processor

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Time to Market

Depending on the complexity of the project a loyalty solution can be execute in 6-8 months. Time to market depends on effort involved in legacy data migration and integration Siebel with 3rd party systems. Siebel being an enterprise solution is very expensive. Complex licensing structure on add to cost. Additionally maintenance of the application is significantly higher. TCO is very high. Has been tested on hoisting large enterprise databases.Finnairs Siebel implementation handles 40 million transactions. Siebel can be integrated with leading DMS system like FileNet and Documentum.

Comarch claims to have implemented loyalty solutions in under 6 months.

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Cost

Low TCO as compared to Siebel.

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Scalability

Supports transaction volume of 300,000 online.Stores about 13.5 million transactions in the database. Supports managing documents and their flow across an organization. Comarch Document Management Systems allows managing images of documents.

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Document Management System

8. Case Studies 8.1 Nectar Loyalty Program


The Nectar loyalty card is a loyalty card scheme in the United Kingdom issued by a partnership of suppliers including the supermarket chain Sainsbury's, the credit card American Express and the petrol distributors BP. It was launched in 2002 and current member list includes Ford, EDF Energy, Expedia and Hertz. Unlike other loyalty card schemes, Nectar allows collectors to accrue points and redeem rewards at multiple retailers or 'sponsors' and 'reward partners', rather than just one. Largest Loyalty program in UK, the scheme has attracted more than half of all UK households with over 20 million members6 19 Nectar cards are swiped every second of a day 74 billion points collected in year 20036 Points can be earned and redeemed at 6000 participating retail outlets across UK 23 participating partners 850 million worth of rewards awarded to collectors to date

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Partner Sainsbury Expedia.co.uk AA Beefeater BP

Points 2 Nectar points per 1 Collect up to 1,000 points when booking a holiday through Expedia.co.uk. 2 Nectar points per 1 2 Nectar points per 1 1 Nectar point for 1 litre

Offers Collect 1 for every re-used bag

2000 Nectar bonus points on joining AA

Redemption is available on wide range of products and services. Category Shopping Toys, Kids & baby Home, DIY & Garden Fun & Night Out Travel & Holiday Electrical Music, DVD & Games Health & Beauty Example Money off at Sainburys High School Musical Card Phillips VoIP phones Vue Cinemas Delicious Retreats UK Sony DVD Handycam SAN SD memory card Hugo XV Man Points 2.5 off your shopping for 500 points 2400 4600 1000 39800 60300 1600 6800

Infosys technology built and maintains the entire IT infrastructure for Nectar. Infosys opted for a complete custom application and the core architecture of this program is built on J2EE architecture. The application supports Nectars website, call center and marketing database. The application integrates with numerous PoS, enabling collectors points balance and reward redemption transactions to be updated in real-time. Loyalty Management Group UK launched the Nectar loyalty which is UKs first coalition customer loyalty program. The group owns and operates the Nectar brand, and also owns the Air Miles brand.

8.2 Tesco Clubcard Loyalty Program


Clubcard is a single operator loyalty program run by Tesco. It was launched in 1995. The program is owned and run by Tesco. However, Clubcard holders can collect points when buying from various partners such as Alders, Beefeater, Marriot, and National Tyres. The program has points that are issued by partners; there are also certain partners who only participate as redemption partners.

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Estimated eight out of every ten trips to Tesco, shoppers use clubcards About 25 million clubcards in existence, representing 14 million households; resulting in more than 10 million active accounts7. Has an impressive redemption rate of 20% - 40% In 5 year period following the implementation of the Clubcard program, sales have increased by 52% Tesco.com handles 500,000 transactions weekly Members gain one point for every 1 spent on goods in-store, online, on Tesco Petro forecourts, Tesco Personal Finance products and Tesco Telecoms. Additional points can be collected at 10 clubcard partner companies. Partner Tesco mobile Lexmark Greenbag Points 3 points for every 1 spent on mobile top up 200 points when you recycle your old inkjet cartridges 1 point every time a bag is reused A green initiative Description

Once the customer has accumulated 150 points the points are converted into clubcard vouchers at an exchange rate of 1p to one point, thus giving an effective discount of 1%. For every 100 points you get a voucher of 1. Vouchers will be mailed every three months along with clubcard statements. Vouchers can then be spent across Tesco. Vouchers can be used to get money off the shopping bill (online as well offline).

8.3 Malina Coalition Loyalty Program


Malina is a coalition loyalty program, running through Moscow region of Russia and was launched in April 2006. The program members earn points when doing their daily shopping at malina partners, talking on their mobile phones or eating out at the restaurants. Malina card holders automatically earn points which they can later redeem for free rewards proposed in the Malina catalogue via call center or Malina website. The program offers customer the ease to use a single card at all the partner outlets. Some of the highlights of the program are: single card functions in all of partners 350 point of sales through out Moscow. All family members accumulate points on one account (2 Malina cards are distributed at the time registered, 2 more can be additionally requested). Points may be exchanged for various qualifying products and services which can be found in the Malina rewards catalog. A co-branded visa credit card is also available that doubles as a credit card as well loyalty card. No.1 loyalty card in consumers wallet in Russia.

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3.6 million target market customers holding Malina card, with 1.1 million active accounts registered in the system 200 million Malina transactions in 2008 alone 4 million land mails, 7 million emails and .47 million text messages sent to customers in2008 Over 30,000 rewards delivered monthly to customers 87.5 million loyalty transactions processed in the system (0.3 seconds to process a singltransaction) 230 active promotions and 10 campaigns Members earn points by shopping, dining and using service of partners. Points can be redeemed against Malina catalogue. The collected Points are valid within 3 years from the moment of issuance to the Membership Account. Partner Ramstore Beeline 36.6 BP Raiffeisen Points 70 points for every 500 roubles 30 points for every 200 roubles 40 points for every 200 roubles 40 points for every 300 roubles 20 points for each 200 roubles spent Description Finest super market in Russia Offers mobile communication in Russia, Kazakhstan, Ukraine Market leaders in Pharmacies Gas stations Bank, offers co-branded visa cards

Points can be redeemed against the Malina product catalogue available at the Malina website or via a call center. The reward catalogue offers 1000 Rewards across 20 categories. Redemption is available on wide range of products and services. Category Shopping Toys, Kids & baby Home, DIY & Garden Electrical Music, DVD & Games Health & Beauty Example Bauer Electric shaver Mickey Toy Phillips VoIP phones Bce Mixer Phillips iPod Speakers Forrester Perfume Points 18750 6000 4600 13850 29000 9400

Comarch Loyalty Management is the IT solution behind the Malina program. Price and rapid implementation period of Comarch were the main criteria behind the product selection for LPV. The project was executed in 6 months, by a 12 member team.The system itself integrates with numerous transaction systems. Comarch contact center system, business administration, B2C web portal and Comarch Logistic modules were implemented along with the loyalty solution.

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9. ITC Infotechs Unique Positioning


ITC Infotechs design capability derives from the strength of its people who come from various industry backgrounds and blend hands-on experience, subject matter expertise and IT skills. This experience translates into effective loyalty models and processes. By virtue of implementing loyalty solutions for customers across verticals like Travel, Hospitality, Consumer Good and Retail, it has uniquely positioned itself as the marquee specialist in loyalty space. ITC Infotech has about 150 resources including consultant, engineers and designers who have hands on expertise in implementing loyalty projects. Our credibility comes from our implementation experience. We have implemented the frequent flyer program for the biggest carrier in Europe. We have also implemented a coalition loyalty program spanning retail and hospitality sector. ITC Infotech has built a specialist practice in Business and Customer Analytics, including IT enablement of business intelligence, for effective Program Analysis & Customer Insight that are essential for success. ITC Infotech is the preferred partner of Oracle in loyalty arena. Being the preferred partner of Oracle we have the privilege of working with Oracle on several co-development initiatives. We have been involved in Siebel Loyalty Product Strategy developing PIPs in Retail Loyalty. Over and above our excellent coverage in Loyalty domain, a vital keg driving our implementation success has been our Loyalty Accelerator. The loyalty accelerator for retail helps accentuate loyalty implementation by drawing from our rich repository built over the course of last several years. The Retail Loyalty Accelerator provides: Pre-configured tool kit with promotion rules, extracts of program set up and seed data Ready to deploy integration framework complete with workflow and business services Data migration tool to migrate data from legacy system End to End loyalty services offered by us: Processes: Check the recommended processes for viability, gap identification, gaps correction, delete any process, add new process. Loyalty Modeling: Help in enhancing the capabilities of recommended model or totally advise a new one based on the organizational requirements. Implementation: Requirement, Design and Development of Loyalty Application and integration testing Data migration and integration Deployment, release management Support and project management

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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

Training:

Train the trainer programs for a select at these divisions who can further train their staff. Technical training User and Administrator training to enable effective utilization of the system and its various capabilities.

Analytics: Analytics should be broadly segregated into two significant areas. Customer Analytics Profiling and Segmentation over multiple parameters Product Popularity : Customer Profile Metrics Campaign : Target Customer Profile Fit Program Analytics Loyalty Index Activity : Member base ratio Program ROI Campaign Analytics

10. Conclusion
Customer Loyalty has become central to business health. Retailers must be able to gain appropriate insights into customer behavior and reward them accordingly. The first step is to identify the business attributes which will elicit maximum customer loyalty. Each of this attribute has to be identified, measured and tracked. The essence is to deliver the loyalty attributes that matter quickly so that they have a positive impact on the critical business driver. Business should understand that loyalty is long term initiative, which requires substantial investment upfront. Given the scale of investment retailers should do a comprehensive product evaluation. The product evaluation should ensure right fitment with regards to meeting the business attributes, provide required flexibility and should support integration with other enterprise applications. The evidence is clear. Companies receive proven bottom-line benefits from establishing long-term customer relationships, and those companies that invest strategically in improving customer loyalty can expect significant gains in profitability and other financial measures.

References
1 Reichheld, Frederick, and W. Earl Sasser, Zero Defections: Quality Comes to Services, Harvard Business Review, SeptemberOctober 1990. 2 AC Nielsen (2005), 9th Annual Frequent Shopper Survey. http://www2.acnielsen.com 3 Loyalty Trends for the 21st century. Colloquytalk. Michael T. Capizzi and Rick Ferguson 4 The State of the Industry: Retail. 1to1 Magazine. August 13, 2003. Ruth P. Stevens. 5 Fixing Grocery Loyalty Programs. Forrester. January 2003. Christine Spivey Overby with Kate Delhagen and Amy Dash. 6 Multi-partner loyalty programmes The Loyalty Guide II 7 SIMMS, A. (2007) Getting To Know You, (online), New Statesman. Retrieved April

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12. Appendix
API Application Programming Interface CTI Computer Telephony Integration CLM Comarch Loyalty Management iSLE In Store Loyalty Engine OBIEE Oracle Business Intelligence Enterprise Edition PoS Point of Sale PIP Process Integration Packs

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